Bonus and commission clauses in Australian employment contracts are among the most frequently disputed terms, particularly at termination. The core issue is the distinction between discretionary bonuses (which the employer can withhold at will) and contractual entitlements (which the employee has a legal right to receive). Many employment contracts are deliberately ambiguous on this point — using language that sounds like a commitment but includes enough weasel words to give the employer discretion. For commission-based roles, the stakes are even higher. Sales professionals may have 30-50% of their total compensation tied to commissions, and disputes over whether commissions are 'earned' at the point of sale, delivery, or payment can result in significant losses when an employee leaves.
What is a Bonus and Commission Structure?
A bonus is an additional payment beyond base salary, which may be discretionary (awarded at the employer's option based on individual or company performance) or contractual (a binding entitlement if specified conditions are met). A commission is a payment calculated as a percentage of sales, revenue, or other measurable metrics, typically forming part of the employment contract and payable when the triggering event (sale, delivery, payment) occurs. The legal treatment differs significantly: discretionary bonuses are generally not enforceable, while contractual bonuses and commissions are enforceable as contractual debts.
Red flags to watch for
If the contract sets out objective criteria (e.g., 'you will receive $10,000 if revenue exceeds $1M') but labels it 'discretionary,' there's an argument the bonus is actually a contractual entitlement. The label alone doesn't determine its legal nature.
A clause that forfeits all unpaid commissions on termination — including commissions on deals you closed months ago — may be void as a penalty under Australian contract law (Andrews v Australia and New Zealand Banking Group, 2012).
Without clarity, the employer may argue commissions aren't earned until the client pays (which could be months after the sale), and that you're not entitled to commissions where payment arrives after your termination date.
While reasonable for genuine cancellations, some clawback provisions extend to circumstances beyond the employee's control (client insolvency, product defects) and can result in negative commission balances.
If the employer can unilaterally increase targets or reduce rates, they can effectively reduce your compensation without negotiation. Any changes to commission terms should require mutual agreement.
If the bonus is earned over 12 months but only paid in March, and you leave in January, a 'continued employment' condition means you forfeit 10 months of earned bonus with no pro-rata payment.
Your legal rights
Bonus and commission entitlements in Australia are governed by the employment contract, the Fair Work Act 2009 (Cth), and applicable Modern Awards or Enterprise Agreements. The Fair Work Act's National Employment Standards (NES) do not specifically address bonuses or commissions, but s.323 requires employers to pay amounts owing under the contract. The distinction between discretionary and contractual bonuses was examined in Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357, where the court held that a bonus described as discretionary can become a contractual entitlement based on the surrounding circumstances and conduct. Commission forfeiture clauses may be challenged as penalties under the rule in Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30. The General Protections provisions (Part 3-1 of the Fair Work Act) may apply if bonus or commission entitlements are withheld for a prohibited reason (such as exercising a workplace right). State-based claims for breach of contract can also be pursued in relevant courts.
Questions to ask before you sign
- 1Is the bonus discretionary or contractual, and what specific criteria determine whether it is paid?
- 2At what point are commissions 'earned' — at the time of sale, delivery, client payment, or some other trigger?
- 3What happens to unpaid commissions and pro-rata bonuses if my employment is terminated?
- 4Are there clawback provisions, and if so, what events trigger a clawback and is there a time limit?
- 5Can the employer change commission rates, targets, or territory allocations during the year, and is my consent required?
- 6Is there a cap on commissions, and if targets are exceeded, what is the accelerator or multiplier structure?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.